Today’s Top Markets For Maximizing Your Declining Dollar Discount

The U.S. dollar came to life in 2014, after years in the doldrums. It gained dramatically against many of the world’s currencies, creating a buying opportunity for dollar-holders that was unprecedented in recent memory.

Those of us in the property investment business sent out weekly recommendations, urging readers to take advantage of the buying opportunity… and frankly, thousands of you did exactly that.

But what about today? Does the U.S. dollar still hold a big advantage?

The short answer is yes.
Even though the U.S. dollar is off its peak against virtually every currency, it still has strong buying power in certain markets… far more buying power than it had in 2013. But in other markets, while the U.S. dollar still holds an advantage, that advantage is significantly less than it used to be.

Let’s look at the U.S. dollar’s performance since the run-up and see where the bargains lie.

The U.S. Dollar Made An Impressive Gain Starting In 2013

As an army of newsletter writers were predicting the U.S. dollar’s demise, the U.S. dollar made an unexpected turnaround in 2013 and 2014. It started climbing against many of the world’s currencies (and the U.S. dollar index) at an impressive rate.

This resulted in a rare opportunity for property investors, who suddenly found properties available abroad at huge discounts in U.S. dollar terms.

At the peak of the U.S. dollar’s run-up, buyers in Brazil saw an increase of almost 100% in their buying power, using 2013 as a point of reference. Colombia was not far behind, and even Europe wound back the clock to rates not seen since 2003.

How many bought at the peak?

Some but not as many as you might think. Many buyers don’t want to buy at a good rate, because they’re waiting for the best rate. Unfortunately, you never know what the best rate is until after the fact, so most people miss the peak.

When taking currencies into consideration prior to a purchase, I suggest that you look at where the exchange rate is by historic standards… and not try to pick the perfect moment.

Here’s a chart showing the increase in the U.S. dollar’s buying power at the peak of the U.S. dollar’s climb (a peak that occurred at a different time for each currency), along with how much of that increase has been lost as of today.

Country

Exchange Rate with USD on 01-Jan-13

Peak Exchange Rate*

Buying power increase at USD’s peak

Change from USD’s peak to today

Brazil

R$ 2.05

R$ 4.09

99.5%

-29.4%

Colombia

COP 1,755

COP 3,370

92.0%

-14.9%

Mexico

MXN 12.70

MXN 21.40

68.5%

-17.2%

Chile

CLP 470

CLP 723

53.8%

-13.1%

Canada

CAD 0.99

CAD 1.42

43.4%

-13.6%

U.K.

£0.585

£0.822

40.5%

-10.2%

Europe

€ 0.76

€ 0.94

24.0%

-10.1%

*Peak exchange rates occurred at different dates for each currency
At the peak of the U.S. dollar’s performance, buyers realized almost a 100% increase in some markets. In the right-hand column, you can see how much of that increase has eroded as of today.

Here’s What Happened With Major Markets Over The Past Year

The past year has been somewhat stable in Latin America, while the U.S. dollar lost significant buying power in Europe, Canada, and the U.K.

Brazil was the only country where the U.S. dollar actually gained buying power, while Colombia was unchanged. The most dramatic loss of the U.S. dollar’s buying power was against the pound sterling, as investors set aside some of their Brexit fears.

Here’s a summary of what happened over the past 12 months:

Country

Exchange Rate with USD 30-Sep-17

Change in buying power, past 12 months

Brazil

R$ 3.16

1.6%

Colombia

COP 2,932

-0.1%

Mexico

MXN 18.26

-1.4%

Chile

CLP 639

-2.1%

Canada

CAD 1.25

-6.0%

Europe

€ 0.85

-7.6%

U.K.

£0.746

-9.2%

Brazil is the only country in my survey where the U.S. dollar has gained in buying power in the past 12 months.

Forget The Past; Here’s Where Your Buying Power Lies Today

There is no value in fretting over the past and worrying about what the U.S. dollar used to buy. The important thing today, as I mentioned, is to keep the U.S. dollar’s buying power in historical perspective.
In other words, don’t worry about having missed the peak. Take stock of where the U.S. dollar is today. As you’ll see, there are still some strong currency bargains out there.

Colombia has retained the strongest buying power for buyers with U.S. dollars. As of today, dollar-holders still have 67% more buying power than they had in 2013. This is the best deal out there, among the countries and currencies that I follow. Today’s US$100,000 purchase cost almost US$167,000 in 2013.

Brazil comes in close behind Colombia, with U.S. dollars sporting 54% more buying power than they had in 2013. Today’s US$100,000 purchase in Brazil would have cost you US$154,000 at that time.

Here’s how the Colombian peso and the Brazilian real performed against the U.S. dollar. Note the similarity of their curves.

Mexico comes in at third place, offering the dollar-holder almost 44% more buying power than it did in 2013. Mexico’s performance did not track with most currencies (its peak occurred later) since it was the only one to suffer the “Trump Effect”… mostly due to the president’s campaign promise to scrap the free trade agreement, NAFTA. Those concerns are now diminished—and the currency has partially recovered—as you can see below.

The Trump Effect caused a spike in the dollar’s value against the peso, which has since diminished

Remember, your advantage in Mexico applies only to properties priced in pesos… not to those priced in U.S. dollars.

Europe has retained the most modest increase in buying power, but it still offers a 12.6% increase in buying power since 2013. And that’s not bad… if you’d like to buy in Europe, then a 12% discount will be welcome. My hypothetical US$100k apartment would have sold for US$112,500 in 2013.

Here’s a summary of where we are today, in chart form.

Country

Exchange Rate with USD 30-Sep-17

Exchange Rate with USD on 01-Jan-13

Increase in buying power between 2013 and today

Colombia

COP 2,932

COP 1,755

67.1%

Brazil

R$ 3.16

R$ 2.05

54.1%

Mexico*

MXN 18.26

MXN 12.70

43.8%

Chile*

CLP 639

CLP 470

36.0%

U.K.

£0.746

£0.585

27.5%

Canada

CAD 1.25

CAD 0.99

26.3%

Europe

€ 0.85

€ 0.76

12.6%

Again, the buying power increase in Mexico applies only to properties priced in pesos, not in U.S. dollars. In Chile, as well, it applies only to properties prices in pesos, not properties priced in UF (the Unidad de Fomento, which is a unit of account used in Chile).

Keeping Currencies In Perspective

I’m not a currency expert, but I do share a critical skill with real currency experts: We’re both extremely accurate at “predicting” the past… and equally inept at predicting the future.

But reflecting on the past has value in this case. Not so we can bemoan the fact that we missed the peak, but to keep today’s exchange rates in perspective. That is, as a means to know when exchange rates are a good (or bad) deal in relation to the currency’s history.

For me, exchange rates are seldom a deal-breaker. But they do factor in to the overall picture when considering a property priced in a foreign currency… or for that matter, when considering which countries to invest in.

And, bottom line and big picture, by historic standards, U.S. dollar-holders still hold an advantage in many key markets around the world.

Lee has been living overseas for nearly two decades, making his first purchase abroad in the colonial city of Cuenca, Ecuador. After that first investment, he traveled extensively across Latin America and Europe looking for the best property deals possible. Lee’s network of property insiders from those travels, along with his understanding of local cultures and languages, has helped him develop insight into local property markets that only the locals usually possess.